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Income TAX ACT, 1961: ss. 115JA/115JB and 234B/234C – MAT Companies – Interest on tax calculated on book profits – HELD: Interest u/ss 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable u/ss 115JA/115JB – Circular No. 13/2001 dated 9.11.2001 issued by CBDT. The assessee in C.A. No. 135 of 2011 furnished a return of income on 28.11.1997 declaring total income as Nil. On 28.3.2000, an order u/s 143(3) of the Income Tax Act, 1961 was passed determining the total income as nil after set off of unabsorbed business loss and depreciation. The tax was levied on book profits determined as per the provisions of s.115JA. The interest u/s 234B was charged on tax on book profits as worked out in the order of assessment. The assessee’s appeal was dismissed by the CIT (A) as also by the Income Tax Appellate Tribunal. The High Court following the judgment of Karnataka High Court in the case of Kwality Biscuits Ltd.1 held in favour of the assessee that interest u/s 234B could not be charged on the tax calculated on book profits. In the instant appeals, the question for consideration before the Court was: whether interest u/s 234B can be charged on the tax calculated on book profits u/s 115JA? Allowing the appeals of Revenue and dismissing those of the assesses, the Court HELD: 1.1 Sections 115J/115JA of the Income Tax Act, 1961 are special provisions, which provide that where in the case of an assessee, the total income as computed under the Act in respect of any previous year relevant to the assessment year is less than 30% of the book profit, the total income of the assessee shall be deemed to be an amount equal to 30% of such book profit. The object is to tax zero-tax companies. [para 7] [156-E-F] 1.2 The pre-requisite condition for applicability of s. 234B is that the assessee is liable to pay tax u/s 208 and the expression “assessed tax” is defined to mean the tax on the total income determined u/s143(1) or u/s 143(3) as reduced by the amount of tax deducted or collected at source. Thus, there is no exclusion of ss.115J/115JA in the levy of interest u/s 234B. The expression “assessed tax” is defined to mean the tax assessed on regular assessment which means the tax determined on the application of s. 115J/115JA in the regular assessment. [para 8] [157-B-D] 1.3 The view of the Karnataka High Court in Kwality Biscuits Ltd. that interest u/s 234-B could not be charged on the tax calculated on book profits, was not shared by the Gauhati High Court in Assam Bengal Carriers* Ltd and Madhya Pradesh High Court in Itarsi Oil and Flours (P.) Limited as also by the Bombay High Court in the case of Kotak Mahindra Finance Ltd. which decided the issue in favour of Revenue and against the assessee. It appears that none of the assessees challenged the decisions of the Gauhati High Court, Madhya Pradesh High Court as well as Bombay High Court in the Supreme Court. The judgment of the Karnataka High Court in Kwality Biscuits Ltd., which was confined to s.115J of the Act, was challenged by Revenue and its special leave petition was dismissed by the Supreme Court in limine. [(2006) 284 ITR 434]. However, the Karnataka High Court has thereafter in the case of Jindal Thermal Power Company Ltd. distinguished its own decision in case of Kwality Biscuits Ltd. and held that s. 115JB is a self-contained code pertaining to MAT, which imposed liability for payment of advance tax on MAT companies and, therefore, where such companies defaulted in payment of advance tax in respect of tax payable u/s 115JB, it was liable to pay interest u/ss 234B and 234C of the Act. [para 9] [158-B-H; 159-A-G] 1.4 Thus, it can be concluded that interest u/ss 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable u/ss 115JA/115JB. Therefore, Circular No. 13/2001 dated 9.11.2001 issued by CBDT reported in 252 ITR (St.)50 has no application. Moreover, in any event, para 2 of that Circular itself indicates that a large number of companies liable to be taxed under MAT provisions of s.115JB were not making advance tax payments. In the said circular, it has been clarified that s.115JB is a self-contained code and thus, all companies were liable for payment of advance tax u/s 115JB and, consequently, provisions of ss.234B and 234C imposing interest on default in payment of advance tax were also applicable. [para 9] [158-G-H; 159-A-B] Kwality Biscuits Ltd. Vs. CIT (2000) 243 ITR 519 – distinguished. Assam Bengal Carriers Ltd. v. CIT (1999) 239 ITR 862; and Madhya Pradesh High Court in Itarsi Oil and Flours (P.) Limited v. CIT (2001) 250 ITR 686; CIT v. Kotak Mahindra Finance Ltd. (2003) 130 TAXMAN 730; Jindal Thermal Power Company Ltd. v. Dy. CIT (2006) 154 TAXMAN 547 – approved. Case Law Reference: (2000) 243 ITR 519 distinguished para 9 (1999) 239 ITR 862 approved para 9 (2001) 250 ITR 686 approved para 9 (2003) 130 TAXMAN 730 approved para 9 (2006) 154 TAXMAN 547 approved para 9 CIVIL APPELLATE JURISDICTION : Civil Appeal No. 135 of 2011. From the Judgment & Order dated 06.02.2009 of the High Court of Bombay in ITA No. 1267 of 2008. With C.A. No. 136 of 2011, 459 of 2006 & 7429 of 2008. Bishwajit Bhattacharya, ASG, R.P. Bhatt, S. Ganesh, P.H. Parekh, H.R. Rao, T.M. Singh, Laxmi lyengar, Vikas Malhotra, Taj Singh, B.V. Balaram Das, Pratap Venugopal, Surekha Raman, Asha G. Nair, Namrata Sood (for K.J. John & Co.), Vishal Prasad, Shashank Kunwar, Soumi Guha Thakurta (for Parekh & Co.), Salil Kapoor, Sanat Kapoor, Ankit Gupta, Kamal Mohan Gupta for the appearing parties.

234B. (1) Subject to the other provisions of
this section, where, in any financial year, an
assessee who is liable to pay advance tax
under section 208 has failed to pay such tax
or, where the advance tax paid by such
assessee under the provisions of section 210 is
less than ninety per cent of the assessed tax,
the assessee shall be liable to pay simple
interest at the rate of one and one-half per
cent for every month or part of a month
comprised in the period from the 1st day of
April next following such financial year to the
date of determination of total income under
sub-section (1) of section 143 and where a
regular assessment is made, to the date of
such regular assessment, on an amount equal
to the assessed tax or, as the case may be, on
the amount by which the advance tax paid as
aforesaid falls short of the assessed tax.
4
Explanation 1.–In this section, “assessed tax”
means,–
(a) for the purposes of computing the interest
payable under section 140A, the tax on the
total income as declared in the return referred
to in that section;
(b) in any other case, the tax on the total
income determined under sub-section (1) of
section 143 or on regular assessment,
as reduced by the amount of tax deducted or
collected at source in accordance with the
provisions of Chapter XVII on any income
which is subject to such deduction or
collection and which is taken into account in
computing such total income.
Explanation 2.–Where, in relation to an
assessment year, an assessment is made for
the first time under section 147, the
assessment so made shall be regarded as a
regular assessment for the purposes of this
section.
Explanation 3.–In Explanation 1 and in sub-
section (3) “tax on the total income determined
under sub-section (1) of section 143” shall not
include the additional income-tax, if any,
payable under section 143.
(2) Where, before the date of determination of
total income under sub-section (1) of section
143 or completion of a regular assessment, tax
5
is paid by the assessee under section 140A or
otherwise,–
(i) interest shall be calculated in accordance
with the foregoing provisions of this section up
to the date on which the tax is so paid, and
reduced by the interest, if any, paid under
section 140A towards the interest chargeable
under this section;
(ii) thereafter, interest shall be calculated at
the rate aforesaid on the amount by which the
tax so paid together with the advance tax paid
falls short of the assessed tax.
(3) Where, as a result of an order of re-
assessment or re-computation under section
147, the amount on which interest was
payable under sub-section (1) is increased, the
assessee shall be liable to pay simple interest
at the rate of one and one-half per cent for
every month or part of a month comprised in
the period commencing on the day following
the date of determination of total income under
sub-section (1) of section 143 and where a
regular assessment is made as is referred to in
sub-section (1) following the date of such
regular assessment and ending on the date of
the re-assessment or re-computation under
section 147, on the amount by which the tax
on the total income determined on the basis of
the re-assessment or re-computation exceeds
the tax on the total income determined under
sub-section (1) of section 143 or on the basis
of the regular assessment aforesaid.
(4) Where, as a result of an order under section
154 or section 155 or section 250 or section
6
254 or section 260 or section 262 or section
263 or section 264 or an order of the
Settlement Commission under sub-section (4)
of section 245D, the amount on which interest
was payable under sub-section (1) or sub-
section (3) has been increased or reduced, as
the case may be, the interest shall be
increased or reduced accordingly, and–
(i) in a case where the interest is increased, the
Assessing Officer shall serve on the assessee a
notice of demand in the prescribed form
specifying the sum payable and such notice of
demand shall be deemed to be a notice under
section 156 and the provisions of this Act shall
apply accordingly;
(ii) in a case where the interest is reduced, the
excess interest paid, if any, shall be refunded.
(5) The provisions of this section shall apply in
respect of assessments for the assessment
year commencing on the 1st day of April, 1989
and subsequent assessment years.
Interest for deferment of advance tax.
234C. (1) Where in any financial year,–
(a) the company which is liable to pay advance
tax under section 208 has failed to pay such
tax or–
(i) the advance tax paid by the company on its
current income on or before the 15th day of
7
June is less than fifteen per cent of the tax due
on the returned income or the amount of such
advance tax paid on or before the 15th day of
September is less than forty-five per cent of the
tax due on the returned income or the amount
of such advance tax paid on or before the 15th
day of December is less than seventy-five per
cent of the tax due on the returned income,
then, the company shall be liable to pay simple
interest at the rate of one and one-half per
cent per month for a period of three months on
the amount of the shortfall from fifteen per
cent or forty-five per cent or seventy-five per
cent, as the case may be, of the tax due on the
returned income;
(ii) the advance tax paid by the company on its
current income on or before the 15th day of
March is less than the tax due on the returned
income, then, the company shall be liable to
pay simple interest at the rate of one and one-
half per cent on the amount of the shortfall
from the tax due on the returned income:
Provided that if the advance tax paid by the
company on its current income on or before
the 15th day of June or the 15th day of
September, is not less than twelve per cent or,
as the case may be, thirty-six per cent of the
tax due on the returned income, then, it shall
not be liable to pay any interest on the amount
of the shortfall on those dates;
(b) the assessee, other than a company, who is
liable to pay advance tax under section 208
has failed to pay such tax or,–
8
(i) the advance tax paid by the assessee on his
current income on or before the 15th day of
September is less than thirty per cent of the
tax due on the returned income or the amount
of such advance tax paid on or before the 15th
day of December is less than sixty per cent of
the tax due on the returned income, then, the
assessee shall be liable to pay simple interest
at the rate of one and one-half per cent per
month for a period of three months on the
amount of the shortfall from thirty per cent or,
as the case may be, sixty per cent of the tax
due on the returned income;
(ii) the advance tax paid by the assessee on his
current income on or before the 15th day of
March is less than the tax due on the returned
income, then, the assessee shall be liable to
pay simple interest at the rate of one and one-
half per cent on the amount of the shortfall
from the tax due on the returned income:
Provided that nothing contained in this sub-
section shall apply to any shortfall in the
payment of the tax due on the returned income
where such shortfall is on account of under-
estimate or failure to estimate–
(a) the amount of capital gains; or
(b) income of the nature referred to in sub-
clause (ix) of clause (24) of section 2,
and the assessee has paid the whole of the
amount of tax payable in respect of income
referred to in clause (a) or clause (b), as the
case may be, had such income been a part of
9
the total income, as part of the remaining
instalments of advance tax which are due or
where no such instalments are due, by the
31st day of March of the financial year:
Explanation.–In this section, “tax due on the
returned income” means the tax chargeable on
the total income declared in the return of
income furnished by the assessee for the
assessment year commencing on the 1st day of
April immediately following the financial year
in which the advance tax is paid or payable,
as reduced by the amount of tax deductible or
collectible at source in accordance with the
provisions of Chapter XVII on any income
which is subject to such deduction or
collection and which is taken into account in
computing such total income.
(2) The provisions of this section shall apply in
respect of assessments for the assessment
year commencing on the 1st day of April, 1989
and subsequent assessment years.”
6. At the outset, it may be stated that Sections 234B and

234C do not make any reference to Section 115J/115JA.

Section 234B lays down that where advance tax is required to

be paid under Section 208 and there is a failure on that if the

amount of advance tax paid under Section 210 is less than

90% of the assessed tax, then, in that case the assessee is

liable to pay interest. Section 234C refers to interest for
1
deferment of advance tax. It says that if the assessee has to

pay advance tax on its current income on or before 15th of

June and the tax paid is less than 15% of the tax due on the

returned income or the amount of the advance tax paid on or

before 15th of September is less than 45% of the tax due on the

returned income or the amount of such advance tax paid on or

before 15th of December is less than 75% of the tax due on the

returned income, then the assessee shall be liable to pay

interest at the specified rate on the amount of the shortfall

from 15% or 45% or 75%, as the case may be, of the tax due

on the returned income.

7. In our view, Section 115J/115JA are special

provisions. Section 207 envisages that tax shall be payable in

advance during any financial year on current income in

accordance with the scheme provided in Sections 208 to 219

(both inclusive) in respect of the total income of the assessee

that would be chargeable to tax for the assessment year

immediately following that financial year. Section 215(5) of

the Act defined what is “assessed tax”, i.e., tax determined on

the basis of regular assessment so far as such tax relates to
1
income subject to advance tax. The evaluation of the current

income and the determination of the assessed income had to

be made in terms of the statutory scheme comprising Section

115J/115JA of the Act. Hence, levying of interest was

inescapable. The assessee was bound to pay advance tax

under the said scheme of the Act. Section 115J/115JA of the

Act were special provisions which provided that where in the

case of an assessee, the total income as computed under the

Act in respect of any previous year relevant to the assessment

year is less than 30% of the book profit, the total income of the

assessee shall be deemed to be an amount equal to 30% of

such book profit. The object is to tax zero-tax companies.

8. Section 115J was inserted by Finance Act, 1987 w.e.f.

1.4.1988. This section was in force from 1.4.1988 to

31.3.1991. After 1.4.1991, Section 115JA was inserted by

Finance Act of 1996 w.e.f. 1.4.1997. After insertion of Section

115JA, Section 115JB was inserted by Finance Act, 2000

w.e.f. 1.4.2001. It is clear from reading Sections 115JA and

115JB that the question whether a company which is liable to

pay tax under either provision does not assume importance
1
because specific provision(s) is made in the section saying that

all other provisions of the Act shall apply to the MAT Company

(Section 115JA(4) and Section 115JB(5)). Similarly,

amendments have been made in the relevant Finance Acts

providing for payment of advance tax under Sections 115JA

and 115JB. So far as interest leviable under Section 234B is

concerned, the section is clear that it applies to all companies.

The pre-requisite condition for applicability of Section 234B is

that assessee is liable to pay tax under Section 208 and the

expression “assessed tax” is defined to mean the tax on the

total income determined under Section 143(1) or under

Section 143(3) as reduced by the amount of tax deducted or

collected at source. Thus, there is no exclusion of Section

115J/115JA in the levy of interest under Section 234B. The

expression “assessed tax” is defined to mean the tax assessed

on regular assessment which means the tax determined on the

application of Section 115J/115JA in the regular assessment.

9. The question which remains to be considered is

whether the assessee, which is a MAT Company, was not in a

position to estimate its profits of the current year prior to the
1
end of the financial year on 31st March. In this connection the

assessee placed reliance on the judgment of the Karnataka

High Court in the case of Kwality Biscuits Ltd. v. CIT reported

in (2000) 243 ITR 519 and, according to the Karnataka High

Court, the profit as computed under the Income Tax Act, 1961

had to be prepared and thereafter the book profit as

contemplated under Section 115J of the Act had to be

determined and then, the liability of the assessee to pay tax

under Section 115J of the Act arose, only if the total income as

computed under the provisions of the Act was less than 30%

of the book profit. According to the Karnataka High Court, this

entire exercise of computing income or the book profits of the

company could be done only at the end of the financial year

and hence the provisions of Sections 207, 208, 209 and 210

(predecessors of Sections 234B and 234C) were not applicable

until and unless the accounts stood audited and the balance

sheet stood prepared, because till then even the assessee may

not know whether the provisions of Section 115J would be

applied or not. The Court, therefore, held that the liability

would arise only after the profit is determined in accordance

with the provisions of the Companies Act, 1956 and, therefore,
1
interest under Sections 234B and 234C is not leviable in cases

where Section 115J applied. This view of the Karnataka High

Court in Kwality Biscuits Ltd. was not shared by the Gauhati

High Court in Assam Bengal Carriers Ltd. v. CIT reported in

(1999) 239 ITR 862 and Madhya Pradesh High Court in Itarsi

Oil and Flours (P.) Limited v. CIT reported in (2001) 250 ITR

686 as also by the Bombay High Court in the case of CIT v.

Kotak Mahindra Finance Ltd. reported in (2003) 130 TAXMAN

730 which decided the issue in favour of the Department and

against the assessee. It appears that none of the assessees

challenged the decisions of the Gauhati High Court, Madhya

Pradesh High Court as well as Bombay High Court in the

Supreme Court. However, it may be noted that the judgment

of the Karnataka High Court in Kwality Biscuits Ltd. was

confined to Section 115J of the Act. The Order of the Supreme

Court dismissing the Special Leave Petition in limine filed by

the Department against Kwality Biscuits Ltd. is reported in

(2006) 284 ITR 434. Thus, the judgment of Karnataka High

Court in Kwality Biscuits stood affirmed. However, the

Karnataka High Court has thereafter in the case of Jindal

Thermal Power Company Ltd. v. Dy. CIT reported in (2006)
1
154 TAXMAN 547 distinguished its own decision in case of

Kwality Biscuits Ltd. (supra) and held that Section 115JB,

with which we are concerned, is a self-contained code

pertaining to MAT, which imposed liability for payment of

advance tax on MAT companies and, therefore, where such

companies defaulted in payment of advance tax in respect of

tax payable under Section 115JB, it was liable to pay interest

under Sections 234B and 234C of the Act. Thus, it can be

concluded that interest under Sections 234B and 234C shall

be payable on failure to pay advance tax in respect of tax

payable under Section 115JA/115JB. For the aforestated

reasons, Circular No. 13/2001 dated 9.11.2001 issued by

CBDT reported in 252 ITR(St.)50 has no application. Moreover,

in any event, para 2 of that Circular itself indicates that a

large number of companies liable to be taxed under MAT

provisions of Section 115JB were not making advance tax

payments. In the said circular, it has been clarified that

Section 115JB is a self-contained code and thus, all

companies were liable for payment of advance tax under

Section 115JB and consequently provisions of Sections 234B

and 234C imposing interest on default in payment of advance
1
tax were also applicable.